Childcare costs make work 'hardly worthwhile' for some, says report

The report says childcare costs mean many families would be better off if one parent stayed at home

Childcare costs mean having a full-time job is no longer worthwhile for many second earners in middle and low income families, a think tank has warned.

The Resolution Foundation says in the most extreme cases a couple might be left just £4 a week better off with two incomes than they would be with one.

It calls for major changes in childcare to ensure working is worthwhile.

The government says it has set up a commission to look at the affordability of childcare.

The report says childcare costs are also eroding incentives to work for those higher up the income scale.

Cutting family income

Researchers found that a family with two children, in which two earners bring in a total of £44,440, could end up just £4,000 better off than a similar family earning £20,000 less.

The study says the differences in income are eroded by factors such as benefits, tax, tax credits and childcare costs.

The report looks at elements of the system of state support which have the effect of cutting a family income in real terms, as a second earner works more.

A second earner from a middle-income household who is paid £12 an hour will add £4,500 to the family income while working 13 hours a week.

However, if he or she increases the hours above that level, the family income falls off as the combination of childcare costs and withdrawn support through the tax credit system bites into earnings.

The study defines middle income as a salary of between £17,000 and £42,000 for a family with two children in childcare.

Serious concern

Vidhya Alakeson, deputy chief executive of the foundation and joint author of the report, said: "Despite progress over the last decade, the cost of childcare in the UK still eats up a very large slice of family incomes.

"It's hardly worth a typical second earner going out to work more than a couple of days a week, because the family will be barely better off as the extra money is swallowed up by the costs of childcare.

"This is a serious concern because increasing the level of female employment is one of the key routes through which family living standards have increased.

"We need major change in our childcare system to ensure that work is always worthwhile - and that working more hours or a pay rise results in higher take home pay."

A government spokesman said: "Childcare costs are far too high for parents and the system needs reform.

"For too many families, the high costs of childcare mean it is not worth going back to work. That is why we set up a commission to look at the affordability of childcare earlier this year.

"We are looking at best practice in France, Germany, Denmark and the Netherlands, where high-quality affordable childcare is available for parents, and will be setting out proposals in due course."